It is more than a little tempting to dismiss the current turmoil as just another challenge for the ever-resilient Turkish banks to face. Syria and COVID-19 may end up being just that – eventually.
- On Syria, President Erdogan is meeting President Putin on Thursday. Meetings with US and EU officials are also planned.
- On COVID-19, governments around the world are very keen to limit the impact of the outbreak on their economies – G7 finance ministers and central bankers are set to discuss a joint response on Tuesday, 3 March.
Headline and other risks – related to both Syria and COVID-19 – are probably still too great for investors in Turkish banks to ignore, but statements and meetings planned this week may lead to a re-evaluation of the longer-term impact of current challenges.
Here are just five of our observations on Turkish bank bond performance in February:
- Spreads on nine bank bonds have more than doubled (based on indicative mid z-spreads). All nine bonds mature or are callable in 2020 or 2021. The Garanti 6.25% 2021 has widened the most of these bonds – it is 205bps wider than at end-January.
- Two bonds appear to have tightened in February (also based on indicative mid z-spreads). Based on indicative Bloomberg levels, the Kuveyt Turk and Albaraka Turk perps appear to have tightened. We note that both bonds were private placements, and therefore do not really trade.
- More than half (>30) of the bonds we track are now quoted below par (based on indicative mid prices). The vast majority of these bonds are still quoted in the 90s though. The two exceptions are Odeabank (which is majority-owned by Bank Audi) and Bank Asya (which is in bankruptcy/liquidation). At end-January, only nine bonds were quoted below par.
- Almost 50 bonds now yield more than 5% (based on indicative mid YTM). These bonds include 2022 securities issued by Akbank, Garanti, Isbank and Yapi Kredi.
- Subordinated vs. senior spread differences and multiples now range from 140bps/1.4x at Kuveyt Turk (KFINKK) to 440bps/2.1x at Garanti (GARAN). In general, multiples are lower than at end-January but spread differences have increased.
We previously published a report discussing performance patterns in Turkey in 2018, when we saw the last major correction. The following charts are based on February’s performance.
Figure 1: Change in mid z-spreads (bps)
Figure 2: Change in mid z-spreads (%)
Figure 3: Mid prices
Figure 4: Change in YTM (ppts)
Figure 5: Sub vs. senior – spread differences (bps) and multiples (x)